Preparing HR and Payroll Systems for the 2025 Autumn Budget

What to Expect and How to Adapt

With the UK’s Autumn Budget just around the corner on 26 November 2025, HR and payroll professionals are starting to prepare for what could be a significant number of changes affecting payroll, employee benefits, and pensions. While the government has pledged not to raise income tax, National Insurance (NI), or VAT, speculation about potential reforms in areas such as salary sacrifice, pension tax-free cash, and other employee benefits is widespread. Understanding these possibilities and planning ahead is essential to ensure payroll systems can keep up and employees aren’t caught off guard.

A Quick Recap: Why This Budget Matters

The Autumn Budget isn’t just about the headlines. It’s the Chancellor’s opportunity to outline tax, borrowing, and spending plans for the coming year. Last year, Chancellor Rachel Reeves’ first budget included £40 billion in tax rises, yet promised not to increase the main working taxes—income tax, NI, or VAT.

But with borrowing high, spending commitments increasing, and a projected £30 billion fiscal gap by 2029/30, some tweaks are inevitable. For HR and payroll teams, this means paying attention to areas that may not grab headlines but can have a significant impact on payroll calculations, employee take-home pay, and pension contributions.

Key Areas That Could Affect Payroll and HR

1. Salary Sacrifice Arrangements

Salary sacrifice schemes allow employees to forgo part of their salary in exchange for benefits such as pension contributions or electric vehicles. They’re popular because they reduce both employee and employer NI contributions. However, recent HMRC research suggests this might change. Possible scenarios include:

• Removing NI exemptions entirely, meaning both the employee and employer would pay NIC on sacrificed amounts.
• Introducing a threshold (for example, the first £2,000 of sacrifice remains exempt, above that NIC applies).
• Removing both NIC and income tax reliefs, effectively treating sacrificed pay like normal salary.

Impact:

• • Increased payroll complexity: calculations become trickier, especially if systems need to apply different thresholds or partial exemptions.
  • Higher costs for both employers and employees if exemptions are reduced.
  • Potential employee dissatisfaction if take-home pay decreases or benefits become less attractive.

How to accommodate this:

• • Make sure your payroll software can handle different calculation scenarios quickly.
  • Communicate clearly with employees about potential changes, so they understand the implications.
  • Consider modelling the impact beforehand to prepare budgets and benefits communications.

2. Pension Tax-Free Cash

At present, employees can take 25% of their pension as tax-free cash, up to a maximum of £268,275. There is ongoing speculation that the Government may reduce this allowance. Even before any official announcement, speculation alone tends to trigger higher-than-usual activity as people rush to withdraw funds early.

Impact:

• • Payroll won’t be directly involved in the withdrawal process (this sits with pension providers), but you may still face increased employee queries about how withdrawals interact with PAYE and future payslips.
  • HR may see additional pressure from employees seeking guidance or reassurance about the rules.
  • Poor communication or misunderstanding could create confusion for those nearing retirement or considering early access.

How to accommodate this:

• • Work closely with pension providers and HR to ensure consistent messaging is being shared.
  • Provide general clarity (not financial advice) around what payroll does and doesn’t handle, to manage expectations.
  • Monitor any final legislation or Treasury guidance so PAYE treatment of pension-related payments remains correct where payroll does intersect (e.g., if someone opts for drawdown that later affects salary sacrifice, NI qualifying thresholds, etc.).

3. Flat-Rate Pension Tax Relief

Currently, higher earners get more generous tax relief on pension contributions. One potential reform is moving to a flat-rate system where everyone receives the same percentage of relief.

Impact:

• • Employees currently benefiting from higher relief may see reduced pension contributions.
  • Payroll must automatically calculate and reflect the correct tax relief to avoid errors.

How to accommodate this:

• • Ensure payroll systems can handle flat rate versus marginal relief calculations.
  • Model the impact for employees at different salary levels so communications are clear and transparent.

 4. Income Tax Thresholds and National Insurance

Even without headline rate changes, freezing income tax thresholds (“fiscal drag”) could automatically cause more employees to move into higher tax brackets. There’s also speculation that the government could revisit NIC exemptions or rates on certain benefits.

Impact:

• • Employees may see higher deductions without a change in rates.
  • Payroll calculations may become more complex if thresholds or exemptions change mid-year.

How to accommodate this:

• • Monitor official HMRC announcements for updates on thresholds.
  • Ensure payroll systems can adjust automatically to new thresholds.
  • Communicate proactively with employees to explain any changes to take-home pay.

Practical Steps to Accommodate All These Changes

Preparing now can save headaches later. Here are key steps HR and payroll teams should take:

System Updates and Testing

• • Work closely with your payroll provider to ensure your software can handle new calculations for salary sacrifice, pension tax relief, NI, and thresholds.
  • Test different scenarios before the budget takes effect.

Employee Communication

• • Prepare clear, accessible explanations of how changes may affect salaries, benefits, and pensions.
  • Use FAQs, internal webinars, or bulletins to reach employees proactively.

Training and Support for HR Teams

• • Make sure everyone handling payroll understands the potential changes.
  • Update internal processes and documentation so queries can be managed efficiently.

Scenario Planning

• • Model different budget outcomes to understand cost implications for the business.
  • Identify which groups of employees could be most affected and plan mitigation strategies.

Ongoing Monitoring

• • Track official announcements closely to ensure timely system updates and compliance.
  • Keep lines of communication open with payroll providers and benefits teams.

Preparing for Changes Ahead

The Autumn Budget 2025 is shaping up to have a significant impact on payroll and HR, affecting areas such as salary sacrifice schemes, pension contributions, and tax thresholds. By preparing systems, communicating clearly with employees, and modelling potential scenarios, HR and payroll professionals can navigate these changes smoothly, keeping both the business and employees on track.

Staying informed, proactive, and adaptable is key. The more you plan now, the less disruptive the changes will be when the budget is announced.

Changes in payroll and HR can be complex, but you don’t have to face them alone. Tugela People offers tailored payroll solutions and expert guidance to keep your business compliant and your employees informed. Contact us today to find out how we can help.